Scary stories to tell in the board room: 9 failed startups (and what you can learn from them)

It’s the time of year for spooky stories, and we’ve got a few great ones for you here today.

The truth is, you shouldn’t be afraid of failing. Some of the most well-known entrepreneurs out there today failed miserably before they succeeded, and they’ve lived to tell the tale. Here are some scary stories of failure from people who went on to make it big—and what we can all learn from their failures.

John Rampton: Hacked
—

John Rampton is a serial entrepreneur, an investor and an expert in online marketing. He’s also a tremendously successful online contributor, writing regularly for Entrepreneur, Fortune, Forbes, Mashable, Huffington Post, Inc., Time, and TechCrunch. In fact, if you read about entrepreneurship or startups at all, you’ve probably read something by John Rampton.

But before he was famous for starting business after business and making everyone one of them work, Rampton was hacked, and found himself between a rock and a hard place:

“When I first started my company, we worked for 3 months building our product. We launched, everything seemed to be amazing. We were 6 months into our business, with over 15,000 customers when the unthinkable happened: we got hacked. The hacker sent me a list of every email address in our system. I shook in my boots. Everything I’d been working for could be destroyed. I discovered this same guy had hacked PayPal three times in the past—he’s good.”

Rampton decided to take an unusual tactic, one that may have saved his business and reputation:

“I decided to tell him, ‘nice work,’ and that he had extensive skills. He asked for a bounty. I said we didn’t have one, but offered him $1,000 reward for finding a bug in our system. He kindly accepted, deleted all the records, and helped us fix a gaping hole in our system. Since then he’s been patching any holes in our system and triple checking everything. He was only 14 years old when this happened, so I learned that sometimes even the youngest mind can become a very valuable asset. Had I approached him in a different way, things could have been very different.”

James Altucher: Lost $9 million in a single day
—

James Altucher is an American entrepreneur, hedge fund manager, venture capitalist, best-selling author and podcaster. He has the curious distinction of having failed at 17 of the more than 20 companies he founded or co-founded. But if you’re looking for his scary story, it’s easy to lock it down to the time he lost $9 million in a single day:

“I lost $9 million in a day. I was on the set of one of my favorite TV shows. Then I got a text message: ‘Board call in 15 minutes.’ I went on the call. Right away the CEO said, ‘I have some bad news.’ The largest shareholder owed $90 million in back taxes and he had not disclosed this to the company. The bank that loaned the company money claimed that this withholding of information broke the agreement of the loan. So they wanted their money back instantly. Within a day the bank took every division of the company and just handed it over almost for free to other clients of the bank that were in the same industry. I got off the call and I was in shock. I was out in the middle of nowhere on this TV show and no way to get home. No way to even cry. I felt sick. I felt worse than sick. I was basically going to go broke. Again. Or at least it felt that way.”

As someone who feels pretty upset when I misplace a $20 bill, that story makes me pretty uncomfortable. Yet, I also understand the idea of focusing on what really matters, and that’s what Altucher did to get through it:

“I didn’t even really know the other board members. Everything I had done with this company had been motivated by greed. I didn’t like any of them. Now I know: only do business with people you respect and like. A lot. I was scared. But I knew this: I had been through worse things in business (well…almost) and I had always bounced back. So I followed my own advice: was I physically taking care of myself? Check. Was I trying to surround myself with people who I loved and who loved me? Check—not on the board, but on the show, and my family and friends. Was I creative every day? Check. Was I taking care of my spiritually? Check. All this means is: I was alive. Might as well enjoy it. Might as well love it. Might as well immerse myself in it. The horror of losing $9 million might change my bank account. But what a story!”

Kathryn Minshew: Locked out
—

Kathryn Minshew, Founder and CEO of The Muse, woke up one day in 2011 to discover that she and a co-founder were completely locked out from her website, PYP Media, a company she had poured her life savings into building. She described the morning and its aftermath to Fast Company as follows:

“A disagreement between the four [cofounders] turned into a nasty power struggle that put me and Alex [Cavoulacos], my current Muse cofounder, at the receiving end of screaming threats, and I woke up one morning to find my website access, as well as that of Alex and our entire team, shut off. I felt completely humiliated, like I had failed them and myself. I also ended up losing the entire life savings I’d put in the company–about $20,000. We could have sued, or we could have started over. We chose the latter.”

But that wasn’t the end for Minshew. She got right back up again, and—amazingly—had new backing from Y Combinator within months:

“Every single person other than two of my former partners left PYP Media in July 2011 to start The Muse, and in our first month, we had more people visit the site than in the history of PYP. We built a much stronger product, raced ahead with a clear sense of purpose and were accepted into Y Combinator several months later. We’ve raised well over $2 million in venture and angel funding to date and reached over 15 million people. In many ways, that first failure was the best thing that ever happened to me.”

In the end, it was this co-founder fallout and the aftermath that forced Minshew and her remaining partners to refine their purpose, ultimately leading to the success now known as The Muse.

Rand Fishkin: Keeping up with the Joneses left the business behind
—

If you’ve heard of SEO, you’ve almost certainly heard of Rand Fishkin. Also known as the Wizard of Moz, he is the founder and former CEO of the SEO business Moz. He has a huge, very loyal online following from his videos and blog posts, which are both information-packed and a lot of fun to watch. However, Fishkin describes his early leadership of Moz as fraught with failure:

“One of Moz’s most frustrating, most consistent, most pernicious failures under my leadership was obsession with the new. Rather than be comfortable with steady improvements to our products, I was always pursuing the next feature, tool or problem we could tackle. And the more that philosophy spread and became part of the company’s culture, the worse we did. We’d launch a new feature or product, market it, then quickly forget about supporting and upgrading it in favor of moving on to the next thing. We had broken and neglected features no one knew how to support.

“It wasn’t until 2013 and 2014, when we experienced severe product failures and nightmarishly bad customer feedback—when our growth rate dove from 100% year-over-year to 20%—that I started to get the message. But by then, it was too late. I was no longer CEO, and turning that ship took years instead of months.”

So, how did this change Fishkin’s ideas moving forward? “Even today, the hard-won lessons of focus, discipline, and building the *best* thing rather than the *new* thing have yet to fully permeate Moz’s organizational and strategic thinking. My hope is that with more time, they will. And certainly, I plan to take that learning with me for the rest of my career.”

Michael Hyatt: Ran out of money
—

Although there are lots of problems that businesses can experience, running out of money is one of the most common, and most serious. Lack of cash kills at least one-quarter of all small businesses. Michael Hyatt is a best-selling author, speaker and blogger, and formerly worked in publishing. When he struck out on his own it was hard at first:

“In 1991, I—along with my business partner—suffered a financial meltdown. We had built a successful publishing company, but our growth outstripped our working capital. We simply ran out of cash. Although we didn’t officially go bankrupt, the distributor essentially foreclosed on us and took over all our assets. This was a difficult time for me personally.

“I was confused, frustrated, and very angry. Initially, I blamed the distributor for not selling more, but eventually I looked in the mirror and had to acknowledge that I could not move on until I learned from this experience. I am convinced that I would not be where I am today if I had not had this failure.

“I learned to acknowledge each failure, accept responsibility, allow myself to mourn failures while learning from the experience they offer, change my behavior, and then get back up again and go at my next venture wholeheartedly.”

Matt Mickiewicz: Quick change artist
—

Matt Mickiewicz is the co-founder of SitePoint. He also co-founded the web companies Flippa, 99designs and Hired, so he’s been around the block—successfully—a few times. In 2000, he found himself having to make a total change, really quickly:

“SitePoint was in the business of selling ads and sponsorship in 2000, when the ad market dried up overnight. We had no choice but to reinvent the model in order to keep from going under. We realized we needed to go back to our first principles, evaluate what we had (which was an audience and content), observe the customer’s behavior and usage patterns, and deliver a product to meet their needs. It turned out that people were printing out our programming tutorials at home, so we looked toward print publishing to stay afloat.”

Learn to pivot quickly and you’ll be business ninja. Ninja mascot by Leo Sidharta.

Was this too much change too quickly, or too much of a difference from the original brand? Just the opposite. The quick change saved the business:

“Ultimately that decision transformed the business and saved it, leading to future successes like 99designs and Flippa. At the time, [this business model] was pretty disruptive compared to the status quo of publishers who didn’t have a relationship with their customers and relied on bookstores for distribution.

“We learned that your best customers are your past customers, and we were the first major publishing company to really know and build relationships with them on an ongoing basis. This allowed us to move from a traditional “hits” driven model where one bestseller pays for all your losers, to consistently making money on each new book that we put out thanks to 80%+ gross profit margins. What we ended up doing in a way was precursor to other direct-to-consumer companies like Casper, Bonobos and Warby Parker, who have adopted a similar model in their respective industries more than a decade later.”

Neil Patel: Spread himself too thin
—

Neil Patel is the co-founder of Hello Bar, KISSmetrics and Crazy Egg. He is a growth hacker, marketer and SEO specialist with clients like GM, NBC, Viacom and HP. Basically, everyone from Entrepreneur Magazine to The Wall Street Journal acknowledges him as a top influencer, online marketer, and entrepreneur. However, it took a few hard lessons in being spread too thin before he really understood how to position himself for success. He told Buffer Social:

“One of the biggest lessons I learned was not to spread myself too thin. Like other entrepreneurs I love trying to do multiple things at once. But once I learned to focus all of my time and energy into one business, I was able to make it grow faster than all of my previous businesses.”

Jerry Hum: Didn’t know the difference between success and failure
—

Jerry Hum is one of the co-founders of Touch of Modern, an e-commerce site with more than 12 million users and over $100 million in sales in 2016. This online behemoth was a smashing success while Hum was still in his 20s, but that doesn’t mean Hum has never experienced failure:

“Before Touch of Modern, we spent a year and 800K on a project that, at its core, could not scale. After the initial failure, our investors jokingly said, ‘Consider it tuition.’ We meandered along for a year slowly bleeding money. What I regret most is not that we failed, but that we did not fail quickly enough. During this situation, turns out we did not know the difference between success and failure. We held on to really tiny successes among our small group of users as signs that we had something that worked. We thought that the way we struggled was just the way the way the startup life was. The solution we have now to prevent the same mistake is to launch things on a small scale, do it quickly and establish beforehand very concretely what goals we have to hit for the initiative to be considered successful and for us to keep investing. If we don’t hit those goals, we evaluate objectively and move on knowing that the most valuable thing we have is the time we will be spending in the future, not the time we spent in the past.”

Brad Burton: Lost sight of what’s really important
—

Brad Burton is the founder and managing director of the international business networking group 4Networking. He is the author of four books and is a motivational speaker in the UK. Brad learned that finding balance in life can be more important to success in business than any growth strategy you’ll read about:

“I forgot what was REALLY important in life. Me. Health. Family. Sometimes you become so focused on business that you stop paying attention to the other things and in my case it was so detrimental I almost lost everything. I had a successful multi-million pound business, but I almost lost my wife, my children, and I suffered a breakdown. It made me re-evaluate everything. Almost losing everything tends to do that. I changed my life. I changed my focus to my family and to my health and am now a much happier version of myself. I am now in a much happier, content, fulfilled and successful position. I truly believe that the happier you are, the more successful you are. It’s not the other way round and that’s where lots of business people go wrong. I now teach others to do the same. YOU are your best business tool. You have to look after it.”

Here’s to failure!
—

If you’ve learned nothing else from this piece, let it be to never hide from an axe murderer in the basement. Kidding! Let it be that everyone fails, even the biggest names in business. The common thread they all share—aside from later achieving mega-success—is that they took something away from their experiences after facing their failures.

Let it out! Share your spooky failure story in the comments.

The author

Karla Lant is a freelance writer, author, journalist and editor, and an adjunct professor. She focuses on science, technology, and technical writing. She likes to build robots and bake bread in her spare time.

Any comments?

This is an excellent piece – with some very useful lessons for any start-up founder. Here are a couple of failed ventures that I have had – and the biggest lessons that I learned from them:

My first startup venture was somewhat similar to Kathryn Minshew’s story, although it never quite got to the stage of anyone being locked out. I had assembled a great team, but I had no product. No product meant no purpose, no purpose meant no use for the incredible skills that were at the company’s disposal. After 8 months of power struggles and insubordination, I shut the company down, having lost two out of our 8 founding team members.

Another venture was based around myself, a member of my team from the previous venture, and a new guy I met who had claimed to have some experience in management. Still in polytech, one of them constantly pointed out that “this is where all the big company’s start out,” referring to Microsoft, Apple, and other tech giants. The other was constantly reminding us that we would be driving our Ferarri’s and living in million dollar homes within 3 years. I like the optimism, but I think the focus should be on making the company successful rather than getting an expensive car.

So one of the biggest lessons I learned in these two failed ventures (and a couple of others in which I have played a minor role) is “know your co-founder.” Know their skill set, what drives them, and their background. Another valuable lesson is to always have a pre-defined product – my first venture was based on the team, not a product. We didn’t even have a product to offer. My current venture is based on filling gaps in the cleantech market, so it is already less likely to fail.

And a lesson I learned from the struggles of my family business – if you don’t have business skills, the best investment you can make is hiring a business mentor. It is the lowest-risk, highest-yielding investment a start-up founder can make. And it’s usually quite cheap.